3 Better Paying Alternatives to Investing in CDs

Thanks to high interest rates, certificates of deposit (CDs) have been a popular investment this year. The top CDs listed here currently offer rates of 4% to 5%. That’s a solid return, especially if you’re looking for a safe investment that won’t lose you money. With CDs you are guaranteed a rate for the entire term.

But if you’re looking for long-term growth potential, CDs aren’t a good choice. There are much better investments that can earn you twice as much or even more. Below are three options that generally offer better long-term returns than CDs.

1. Index funds

An index fund is an easy way to invest in stocks. This type of investment vehicle aims to track the performance of a specific market index. For example, an S&P 500 index fund tracks the S&P 500 index, which includes 500 of the largest publicly traded U.S. companies. The S&P 500 has a average long-term return of about 10% per yearIndex funds that track this are therefore a popular choice among investors.

The nice thing about index funds is that they do the work for you. You don’t have to worry about building an investment portfolio. You can get a diversified portfolio with just one investment. Index funds also have low fees, with some costing less than 0.1%!

If you’re ready to start building wealth with index funds, you need a broker. Robinhood is widely considered a top option for beginners as it has an easy-to-use platform and commission-free trading. Click here to learn more and open an account today.

2. Real estate investment trusts

Investing in real estate sounds exciting, until you learn how much time and money it takes. Flipping houses or managing rental properties is a full-time job, and you also need money upfront to get started.

Fortunately, there is an easier option. Real estate investment trusts, or REITs for short, were designed so that anyone could invest in real estate. REITs own income-producing real estate, and they are bought and sold in shares on stock exchanges. They are a way to invest in real estate through online investment accounts like this one, without large upfront costs or a significant time commitment.

REITs have historically delivered excellent returns. From 1972 to 2023 they had a average annual return of 12.7%as measured by the FTSE Nareit All Equity REITs Index. That even tops the S&P 500.

3. Target date funds

A target date fund invests for you in shares and bonds and is designed for a specific retirement year. For example, if you want to retire in 2050, you can invest in a 2050 target date fund. When your retirement year is still decades away, the target date fund will invest heavily in stocks to maximize growth. As retirement approaches, money will shift to bonds for more stability.

The advantage of target date funds is that you can take a ‘set-it-and-forget-it’ approach. You don’t have to worry about rebalancing your portfolio to make sure you have the right mix of stocks and bonds. All you have to do is choose a target date fund for your retirement year and invest.

Target-date funds are a common option in retirement plans, including 401(k)s and top-rated individual retirement accounts (IRAs). You can also invest in it through standard investment accounts.

CDs can work well if you want reliable, stable growth in your savings. For long-term investing, they are not the best option because you can build more wealth with index funds, REITs, or target date funds.